Ford-GM Merger/Alliance Talks: Bigger is Not Necessarily Better

Automotive News recently reported that General Motors Corp. and Ford Motor Co. have discussed a possible merger or alliance.[1] Neither company will comment on the talks [2], leading some followers to believe the reports are mere "speculation" and reflect "[n]ostalgia for the glory days of the American automobile industry."[3] Nostalgia and speculation aside, the merger/alliance rumors are enough to incite the interests of industry followers and American car buyers as to the possible benefits of such a relationship.

A merger would combine "two of the world's most recognized brands."[4] The combined company would account for "an astounding 41 percent of the U.S. auto market."[5] An alliance could force innovative thought and encourage novel business decisions, as it seems to some that "[t]he old school way of doing things at Ford and GM isn't working."[6] If nothing else, a merger would combine name recognition and product lines. However, the merger process would not be an easy ride for Ford and GM.

The two auto giants would have to overcome significant hurdles to join forces. For one, Ford and GM tout different management styles.[7] Second, Ford and GM would have to lay aside their differences as competitors [8] and assume new roles as partners. Third, assuming that Ford and GM can consolidate their competing products under one roof, they may face problems of brand loyalty [9] and may find themselves having to convince consumers who self-identify as a "Ford" or "GM" person that their former foe is now their friend. Fourth, there would be little advantage to GM in the merger as the stronger company.[10] Finally, the merged entity would face the task of defining which product lines and particular vehicles are worth saving and which do not benefit continuing operations.[11]

While the possibility of a merger is intriguing in the sense that it could create an ultra-American automotive entity, the costs of such merger may outweigh the benefits. Increased size would not necessarily bring success for Ford and GM, both of whom struggle with expensive non-operational plants, "thousands of union workers they have to pay even when they do not need them," and associated pension and salary costs.[12] Additionally, a merger may not solve a key challenge facing both auto giants: building vehicles that consumers want to buy.[13]

Rather than combine total operations to form the American automotive giant that is rumored to be, Ford and GM would be better off implementing an alliance in the form of partnerships [14] in smaller focused areas. Such partnerships could improve vehicle design and production and benefit consumers in the market for an improved version of an American namesake. One way Ford and GM could accomplish this objective is to co-develop "components that are not customer-centric, like car batteries."[15] Although it would take significant time and testing to make work, Ford and GM could partner to create component parts that can be used in many if not all vehicles manufactured individually by the two companies. While the average consumer may prefer his or her Ford F-150 pickup over GM’s Chevrolet Silverado, or vice-versa, the average consumer may not prefer either Ford or GM’s particular brand of batteries, brakes, spark plugs, shocks, springs, steering systems or vehicle frames. Moreover, if Ford and GM were to combine component product operations, they could limit expenses by having less plants and workers than if the companies conducted base operations separately. In essence, partnering to make component parts would solve at least part of the plant and employee expenses burdening each company while enabling both Ford and GM to continue manufacturing individual vehicle lines.

Ford and GM could also research and develop jointly fuel-saving technologies.[16] The companies could use their combined power to improve hybrid drive transmissions, fuel cell technology, flexible fuel vehicles, and clean diesel.[17] This would be a win-win situation for both the American auto giants and consumers. Given the increased costs commuting to work and shuttling kids to soccer practice, consumers want more fuel efficient vehicles. If both Ford and GM developed fuel saving technologies, the companies could incorporate that technology into their respective product lines, build more attractive products, and capitalize on consumer interest, thereby increasing demand for such vehicles. Again, by partnering on core aspects of vehicle operation and design, Ford and GM could derive mutual benefit yet still retain their unique product lines and customer brand loyalties.

While a complete merger sounds provocative, at this point the talks cannot be referred to as more than unconfirmed speculation. Even if Ford and GM confirm these rumors, a complete merger would not solve the present state of the respective companies’ problems. Rather than combine underperforming product lines and enormous expenses, Ford and GM would be better off leaving their cars in separate parking lots rather than moving everything into one giant mess of a parking garage. If Ford and GM combine forces in an alliance, that partnership should be aimed at promoting research and developing component parts that can be used in each company’s vehicles. At the very least, consumers would benefit from having more advanced vehicles boasting improvements such as better fuel economy. If Ford and GM collaborate on base components and technologies, each company could then incorporate the innovations into new models that would attract consumer interest and reinvigorate American automotive competition.